Optimization in the Energy Industry

Part of the series Energy Systems pp 507-524

Delta-Hedging a Hydropower Plant Using Stochastic Programming

  • Stein-Erik FletenAffiliated withDepartment of Industrial Economics and Technology Management, Norwegian University of Science and Technology
  • , Stein W. WallaceAffiliated withChinese University of Hong Kong Shatin NT, Hong Kong, China and Molde University College

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An important challenge for hydropower producers is to optimize reservoir discharges, which is subject to uncertainty in inflow and electricity prices. Furthermore, the producers want to hedge the risk in the operating profit. This article demonstrates how stochastic programming can be used to solve a multireser-voir hydro scheduling case for a price-taking producer, and how such a model can be employed in subsequent delta-hedging of the electricity portfolio.